• by Judy Warner , November 1, 2006

Stung by consumer complaints and costly litigation, H&R Block yesterday announced what it termed "enhancements" to its refund anticipation loan (RAL) program for the upcoming tax filing season.

The country's largest tax preparer has been the target of numerous lawsuits that allege disclosures in RAL applications are inadequate and that interest rates are excessive. While the Kansas City based-company has agreed to settle dozens of these cases, more are pending.

Yesterday's announcement was seen as a move to appease dissatisfied customers. H&R Block said it would provide customers with information about how debts from a prior tax refund and preparation fees could affect their tax refund loan.

A second enhancement promises an improved disclosure process that would include a side-by-side comparison chart outlining all filing options, fees, and the time it takes to receive a refund to ensure customers have the information they need to fully understand the costs of refund anticipation loans.

"Besides saving our clients money, we're doing even more to make sure H&R Block customers receive the best service and disclosures in the industry," said Mark A. Ernst, chairman and CEO of H&R Block, in a statement. "As our clients' tax and financial partner, we are dedicated to providing our clients with the best products at the best prices."

For a $2,800 classic refund anticipation loan, which Block says is its average loan size, the cost compared to last year will be reduced by more than 40 percent when charged to a new H&R Block Emerald Prepaid MasterCard issued by the H&R Block Bank.

As an 11-day loan, the finance charge on the $2,800 translates to a 36 percent APR, substantially higher than a typical credit card interest rate.

Block says its new Emerald Card allows customers to direct-deposit future payroll and tax refunds, eliminates check-cashing fees, and also reduces or eliminates other transaction charges that can cost clients without bank accounts as much as $600 annually. Consumers most attracted to refund anticipation loans typically have a tighter financial picture than the norm.

Changes to the RAL product follow an announcement in September by Block that it would reduce the cost of refund lending and set as a target the opening of 1 million bank accounts for free during the 2007 tax season.

Campbell Mithun in Minneapolis was retained as Block's agency of record following of review of its estimated $100-million account last spring. However, an H&R Block spokesperson said no specific advertising for this initiative is planned.